The US Federal Trade Commission (FTC) is investigating Amazon and Google over allegations of misleading advertisers regarding the terms and pricing of their search advertisements. Specifically, the FTC's consumer protection unit is examining Amazon's auction practices and whether it adequately disclosed "reserve pricing," which are minimum price floors advertisers must meet to secure an ad slot. Concurrently, Google is under scrutiny for its internal pricing mechanisms and whether it increased ad costs without transparently informing advertisers.
This investigation stems from the FTC's broader antitrust case against Amazon, where it alleges Amazon's marketplace is cluttered with irrelevant search results, making it difficult for shoppers and expensive for sellers. This practice, the FTC claims, effectively compels sellers to purchase ads to ensure product visibility. Amazon's advertising business is significant, generating $56 billion last year, encompassing sponsored listings, video ads, and display advertising across the web. More recently, reports indicate this figure reached $68.6 billion annually.
Reports suggest that a potential lawsuit against Amazon could lead to civil penalties in the billions of dollars, especially if state-level daily fines are applied. For instance, an earlier Prime settlement resulted in a $2.5 billion penalty. The FTC is also alleging that Amazon intentionally doubled the number of ads in search results and that company executives deleted internal communications to evade investigation. In 2017, Amazon reportedly doubled the percentage of ads in desktop search results and more than quintupled it for mobile search results, a move criticized for hindering product discovery and potentially steering consumers toward higher-priced items.
The outcome of this investigation could significantly impact Amazon's ad business, which is a crucial revenue stream. While a negotiated settlement around $2.5 billion might be manageable, a full lawsuit with daily fines could lead to substantial financial penalties and necessitate significant changes in how Amazon structures and explains its ad auctions. The FTC aims to conclude the investigation by summer, though this timeline is flexible due to the complexities of negotiations involving both the FTC and participating states.
